Debt campaigners in Britain have described as “outrageous” the proposed terms of a deal between the Mozambican government and some of the holders of illegitimate bonds issued as part of the two billion dollars worth of loans for three security-linked companies, Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management).

The loans were granted by the European banks Credit Suisse and VTB of Russia in 2013 and 2014.

The new deal restructures the debt arising from bonds initially issued in the name of Ematum. The bondholders will be invited to exchange their existing holdings for new bonds and for value recovery instruments (“VRIs”) linked to fiscal revenues from liquefied natural gas (LNG) projects in the far north of the country.

The deal, outlined in a statement from the Ministry of Economy and Finance on 6 November, thus confirms fears that, even before any LNG is produced, the government has committed revenues from this resource to paying off illegal debts incurred by its predecessor.

The Jubilee Debt campaign, a British charity campaigning against unjust debts, has pointed out that the restructuring means that eventually the Ematum loan will end up costing Mozambique between 1.7 and 2.2 billion dollars.

The bare bones of the agreement are that the government will repay the entire debt, plus the interest payments missed over the last two years, at an interest rate of 5.875%. Five per cent of future gas revenues will be paid to the creditors, up to a maximum of 500 million dollars. The interest payments will begin from 2019, with the principal being paid between 2029 and 2033.

“We have calculated that this leaves the Mozambican people paying at least 1.7 billion dollars in total for the debt, rising to 2.2 billion dollars, depending on how much in gas revenue is also lost”, says Jubilee. “In contrast total payments under the original terms of the loan would have been 1.1 billion dollars between 2014 and 2020, and under the first restructuring (in 2016) 1.4 billion dollars between 2014 and 2023. Each time Mozambique restructures this debt, it agrees to pay more, albeit further into the future”.

Jubilee added that a company which bought the debt when it was first lent stands to make almost 200% more than the original loan. “However, many of the holders of the debt did not buy the debt in 2014. For those who bought when Mozambique defaulted in 2016, they could make 270% more than if they had lent that money to the US government instead. Since the deal was announced the value of the Mozambique debt on financial markets has increased. Even if a 2016 buyer of the debt sells now, they will still make a profit of 50%”.

The deal is not yet done. The Ministry’s 6 November statement said it “is conditional on the parties reaching agreement on mutually satisfactory documentation setting out the detailed terms of the restructuring including implementation, and the Ministry obtaining all necessary approvals, including parliamentary and government approvals in Mozambique”.

Hence “it could still be stopped, if Mozambican parliamentarians are willing to stand up against such a bad deal for the people of Mozambique”, the Jubilee statement said.

Credit Suisse and VTB only lent the money to Ematum, Proindicus and MAM in the first place because the Mozambican government guaranteed the loans. The guarantees were illegal because they smashed through the ceiling on loan guarantees laid down in the 2013 and 2014 budget laws. They also violated a clause in the Mozambican constitution stipulating that only the country’s parliament can approve such debt.

The three companies are effectively bankrupt, and Mozambique has received no benefit at all from the loans. The Ematum fleet of fishing boats is catching no tuna, but is sitting at anchor in Maputo fishing port. The independent auditors called in by the Mozambican Attorney-General’s Office could not account for much of the money lent – which had all gone to the contractor in the United Arab Emirates, and had not passed through Mozambique.

The banks should clearly bear much of the blame for this fiasco. They issued the loans without any proper due diligence – which would have shown that the three companies had been set up in the very recent past, and so had no track record, no expertise, and no assets.

The loans were handled by the London branches of Credit Suisse and VTB, and so the British regulator, the Financial Conduct Authority began a criminal investigation into the role played by Credit Suisse – but that investigation has now been dropped.

“It is deeply disappointing that the FCA has dropped its criminal investigation into Credit Suisse over its loans to Mozambique”, said Tim Jones, policy officer at Jubilee Debt Campaign. “Hundreds of millions of dollars have gone missing, the loans were given in secret and were not agreed by the Mozambique parliament, breaking the law in the southern African nation”.

“If no law was broken in the UK, that only shows the law needs to be changed”, added Jones. “Loans given using English law or by UK companies to governments must be publicly disclosed and made to abide by the law of the country concerned.”